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Abstract

When should central banks issue their own digital currencies? There is no clear guidance on this issue, neither from theory nor practice. In this thesis we perform a textual analysis of the available literature to identify the most important considerations in evaluating the attractiveness of a central bank digital currency (CBDC). Then we use these to recommend which countries should and should not consider issuing a CBDC.

By the use of textual analysis, we find eight considerations to be the most important. These include cashless societies, financial stability, interest rates, technological development, shadow economy, costs, exchange rate policies and institutional credibility. We establish a framework for country level assessment of the implications of CBDC based on these considerations.

Applying our framework, we find that developing countries should generally not consider issuing a CBDC, while developed countries should. More specifically, we find that countries with weak institutions and low financial stability should not consider issuing a CBDC. The introduction of a CBDC in these countries is relatively unlikely to be accepted by the public and can cause adverse effects on the financial system. In contrast, we recommend countries facing particularly low interest rates or developments towards cashless societies to consider issuance of a CBDC, given that they are not restricted from issuing their own currencies. Generally, our recommendations contradict with the current practice. Today, several developing countries are introducing different types of CBDCs, while developed countries are more cautious in their approach. Developed countries emphasize the need for more research, to avoid introducing a currency that might destabilize the financial system without entailing significant benefits compared to today’s systems.

The recommendations to which countries should consider issuing a CBDC are based on both a qualitative and a quantitative approach. We find that the results of both approaches coincide. Based on our findings, we suggest that countries build on our framework in future assessments of CBDC, to ensure that the most important considerations are thoroughly assessed before a digital currency is introduced to the economy.